Under the California Public Utilities Commission ruling, more homeowners and businesses with solar panels can cut their utility bills by receiving credit for any excess electricity they send to the state's power grid.

Photo: Jay L. Clendenin, MCT

Under the California Public Utilities Commission ruling, more...

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Installation crew members for Sungevity, from left, Jeremiah Eanes, Francois Hunter, Larry Galbert, and Lionel Gant, install solar panels on a home at 1236 6th Avenue in San Francisco, Calif., on Thursday, May 14, 2009. Sungevity, which is based out of Berkeley, Calif., installs solar panels on local homes and uses Microsoft Virtual Earth to calculate how to install them and what they will cost.

Photo: Hardy Wilson, The Chronicle

Installation crew members for Sungevity, from left, Jeremiah Eanes,...

The solar industry scored a major win Thursday when California regulators more than doubled the number of homeowners and businesses who will get full financial credit for the surplus electricity that their rooftop panels produce.

The California Public Utilities Commission unanimously approved changes to a policy known as "net energy metering," which allows solar system owners to cut their utility bills by receiving credit for any excess electricity they send to the state's power grid.

The California law that established net metering set a limit on the number of people who could qualify within each utility company's territory, a limit the Legislature later raised. The utilities commission on Thursday changed the way the limit is calculated, greatly expanding the pool of people who will be eligible in the future.

Maintaining the grid

Utility companies, including Pacific Gas and Electric Co., objected. Net metering customers, they argued, don't pay their fair share of the costs of maintaining the state's electricity grid. Other customers must pick up the slack.

But commissioners saw the vote as a way to keep the solar industry growing in California. Solar companies employ about 26,000 people in the state, with the Bay Area emerging as one of the industry's hubs.

"Today's decision ensures that the solar industry will continue to thrive for years to come, and we are fully committed to developing a long-term solution that secures the future of the industry in California," said Michael Peevey, president of the utilities commission.

Under state law, the utilities must offer net metering to all solar customers until the amount of electricity their systems can generate, together, equals 5 percent of the utility's peak demand. PG&E, which has more rooftop solar systems in its territory than any other American utility, expects to reach 3.5 percent by the end of this year and would have hit the 5 percent limit in 2014.

The companies that sell and install solar systems feared that customer demand would start drying up next year as a result.

"Without this corrective fix, our company and the whole of the industry really stands to hit a brick wall in 2013," said Ben Higgins, director of government affairs for REC Solar, before the vote. "What's important to us is we have the certainty, when we go to a homeowner, that net metering will be there when the system gets built."

Supporting solar

Net metering is just one of the ways California has tried to encourage solar power's growth.

In 2007, the state started offering rebates for solar installation, under a program called the California Solar Initiative. But those rebates, which have funded 115,392 solar systems so far, were designed to decrease in size over time. They are dwindling fast, making net metering even more important to the industry.

The utilities view net metering as a form of subsidy. By slashing their bills, net metering customers aren't paying as much as other customers for maintenance of the grid, said PG&E spokeswoman Lynsey Paulo. That shifts costs onto other customers.

"We're proud to be a strong supporter of solar," said Paulo, who noted that the utility has 65,000 rooftop solar systems in its service territory. "At the same time, we really strongly believe that everyone needs to be concerned about this cost shift from solar customers to customers who can't afford it or choose not to go solar."

The commissioners on Thursday expressed some sympathy for that view. They ordered a study of net metering's costs and benefits, to be completed by October 2013. And they voted to suspend net metering at the start of 2015 unless the commission issues new rules for the program, looking at how costs are distributed among utility customers.

"If you think about it, if everyone was on net metering, who would be paying for the grid that we all need to have?" said Commissioner Mike Florio.

Thursday's vote to change the way the net metering limit is calculated involved reinterpreting part of the state law that created the program. More specifically, it involved reinterpreting four words.

The law placed the limit at 5 percent of each utility's "aggregate customer peak demand." Up until now, the utilities have interpreted that to mean the highest total electricity demand recorded in their service territory.

New technology

But renewable power advocates argued that "aggregate customer peak demand" should be calculated by adding together the peak demand of all individual customers. The utilities countered that when the law's current language was adopted, in 1998, that kind of calculation wasn't even possible. It is now, however, due to the deployment of digital smart meters across the state.

Under the old interpretation, the 5 percent limit equaled enough solar systems to generate 2,464 megawatts of electricity statewide. Under the new interpretation, that rises to 5,265 megawatts. A megawatt is a snapshot figure, roughly equal to the amount of electricity used by 750 typical homes at any given instant.